Research On China’s Real Estate Systemic Risk

Over the past decade, the real estate industry, as a pillar industry in China, has become a vital means for the government to stimulate economic growth through fixed asset investment. At the same time, the excessive-priced houses have caused serious social problems. With the frequently enhanced regulatory policies, the prices of house have been unable to enter a downward spiral. Some people lost faith in the real estate control policies, even think that the real estate systemic risk will never appear. With the changes of the macroeconomic environment, the tightening of real estate policies, the expansion of land supply, the gradual diminishing of demographic dividend and the improved relationship between market supply and demand, the turning point for house prices to fall from the high position may unexpectedly come. Meanwhile, the chronic irrational exuberance in real estate industry has aroused our concern about the impact on related industries, the financial system and even the macroscopic issues owing to the price fluctuation in real estate.This paper provides an in-depth analysis into the status quo of China’s real estate industry from the fundamental aspect and the policy-making aspect. By analyzing both the external and internal factors in price fluctuation of real estate market, it suggests that the in the future, the real estate supply curve will move towards the bottom right and the demand curve should move towards the bottom left. The systematic risk in real estate is approaching. This paper also illustrates that price fluctuation in real estate has a strong contagious effect on local government’s financial situation, the financial system and macroeconomic department. On the basis of what mentioned above, the paper argues that long-term real estate regulation mechanism must be established the macro-prudential supervision must be strengthened and the risk contagion channels of real estate risks could be cut off effectively.